?Lending for infra cos should be under priority sector?

The domestic liquidity crunch triggered by the global economic crisis has rendered the economic system groping for liquidity. This has had an all-encompassing effect on all the sectors until the government injected liquidity. While all the resources of raising funds from various sources for future infrastructure projects have dried up, banks are the only avenue to look up to. Infrastructure project financing company, Srei Infrastructure Finance Ltd?s managing director, Hemant Kanoria, spoke to Ashutosh Kumar of FE on the effect of the meltdown, sustainability of government initiatives and policy expectations.

How has the global economic crisis affected finance portfolio of the non banking finance companies (NBFCs).

Since this has started taking a toll only two to three weeks back, it is too early to comment on that. This is the reason why we have requested the government that liquidity to the NBFCs in infrastructure and asset finance sector should not dry up. We do not want infusion of funds to us, out of the way. But we want the government to create an enabling environment. Once the enabling environment is created, we are mature enough to know how to raise the funds.

What policy-level initiatives do you think can create this enabling environment?

NBFCs can be divided into segments. One category deals with asset financing and infrastructure financing while others finance against real estate and stocks. For asset financing and infrastructure financing, there is no liquidity crisis at present. However, it is for them to see that moving forward how do they ensure continuity in raising resources. And for that we have proposed that the government should open the external commercial borrowings (ECBs) through the automatic approval route in the manner it has been done for the industry last week. This will ensure that a continuous resource is available to them for doing their business. Secondly, bank lending for infra and project financing companies should be put in the priority sector category.

But the banks will have a large number of customers with diversified demands. In a scenario where all other fund raising avenues are already blocked for everyone, why do you think that lending for project financing NBFCs should be done on a priority basis?

The banks cannot address the small and medium sector, as their delivery mechanism is comparatively slower than the NBFCs in the sector. Demand against project equipment can be funded by an NBFC dealing in the sector within a week, compared to around two months, required by the banks. That is why NBFCs, as an intermediary, play an important role, especially in the SME sector, whether in the infrastructure or the real sector.

But the banks only have liquidity in the current scenario. Don?t you think that the source of funding would become choked since everyone will be queueing up to the banks for funds?

A lot of liquidity will come to the banks. And the banks will need companies like us to complement their efforts towards credit delivery. Banks cannot release the money on their own as they need to have the infrastructure too. Banks do have their delivery mechanism, but to see that all the liquidity that the government is providing through various steps, companies like us can be put under the priority sector so that we can provide the liquidity to the market, making the delivery faster.

In that case you will be taking money from banks and lending it at a higher interest rate. Won?t that put pressure on the inflation side and result in cost escalation?

Hardly by 1%. The difference between the interest rate at which we are lending and the banks are lending at is hardly one to 1.5%. Otherwise if we start charging higher interest rates, people will not take loans from us, and will go to the banks instead . He will only pay a marginal cost, because of the comparatively faster lending that we can do.

In the present scenario, what kind of margin pressure are you facing?

At present, the margin pressure is mainly because of volatility in the interest rates. So once the interest rates stabilise, we will able to know what should be the margin and what is the margin.

How has been the growth trajectory of your company and what is the future outlook?

We have been growing at the rate of 30 ? 40 % in the last twenty years. In the first six months of the current year, we have done business worth Rs 5,000 crore. If the things go on well, we will be able to continue our growth at 30-40%.

But from where will the growth come in the current scenario?

I am not despondent with the infrastructure sector because all the projects announced cannot be stopped. Funding will be required for these. If you look at the infrastructure story of India for the last twenty years, how much have we achieved? We still have a long way to go.

How, in your opinion, will the initiatives taken by the government fare?

The government has proactively taken a slew of measures to caliberate the Indian financial system from the global turmoil. Both the Reserve Bank of India (RBI) and the government have taken steps to ensure that enough liquidity is there in the system.

How sustainable do you think is the liquidity infusion of Rs 2,65,000 crore in the context of mega infrastructure investments lined up in sectors like highways, ports and power ?

At present there is a liquidity crisis, which is being addressed by releasing liquidity in the system. Now, moving forward, once the liquidity crisis is arrested, which to a some extent it has been, you have to see which are the kind of institutions that have been affected and what kind of companies would get affected. So we have to see the repercussions on these kind of institutions. As far as the banks are concerned, liquidity has been infused, so they do not have any crunch at this juncture.

Mega investments are lined up in future projects in almost all sectors. Highways construction will see investments to the tune of Rs 60,000 crore. How will these be funded?

It is very difficult to make a comment on this issue at this juncture.

Are you planning to diversify your portfolio? Do you have any plans to foray into any other sector?

No, we have no plans to diversify. We feel infrastructure will continue to provide momentum to the economy. We have been involved in the sector for the last twenty years. There may be a short blip due to the present conditions. But in the long term, we are very bullish.

Within the infrastructure sector, which are the areas that look promising?

Roads, ports and power are the three areas where continuous growth is possible.